ATO’s pension ruling to be challenged

Financial planners and accountants are preparing a last-ditch challenge to a proposed ruling that may force spouses and children to pay huge capital gains tax bills on the death of a parent or partner.

The draft ruling, published by the Australian Taxation Office, dictates that private pensions lose their tax-free status once a pensioner dies, forcing beneficiaries to pay capital gains and income tax on the assets of the deceased.

The Self-Managed Super Fund Professionals’ Association of Australia (SPAA) said it would use a submission due by August 26 to urge the Tax Office to dump the ruling.

SPAA chairman
Sharyn Long
said in the organisation’s view a private pension should continue until the final benefit had been paid out on the death of the member, which meant no capital gains tax would be payable.

“SPAA does not agree with the ATO’s interpretation and believes the income and capital gains supporting the pension should continue to be tax exempt after the date of death," it said.

Ms Long said the ruling was unjust. “If you can plan ahead and are able to realise assets before you die, you will not be subjected to capital gains tax or the 16.5 per cent benefits tax," she said.

“But if you pass away suddenly and have not realised assets from your pension, you will get caught. It’s inequitable."

Advisers and accountants have been campaigning for several years for the ATO to rule that, once a pensioner dies, their savings be left in the pension phase until all the assets are sold or transferred.

Related Quotes

Company Profile

Experts have warned that adult children, in particular, could face capital gains tax bills of tens of thousands, if not hundreds of thousands, of dollars.

Self-managed superannuation funds are likely to be hit hardest by the ruling because their balances tend to be higher and do-it-yourself funds must dispose of assets to pay death benefits.

The Institute of Chartered Accountants in Australia said it would consult members before finalising its submission, but head of superannuation Liz Westover said she sympathised with advisers and investors who perceived the system to be discriminatory.

“It does seem unfair if a member has access to certain tax concessions that are not able to be continued to their beneficiaries."

She said legislation might be required on the treatment of super assets after the death of a member, rather than just a ruling.

The draft ruling also affects members of private pensions who transfer their fund to another provider. If the assets of the fund are sold after the pension has been wound up, they would be subjected to capital gains tax.

“In SPAA’s view, this may create an unnecessary barrier if members want to transfer their pension to another provider," Ms Long said.

“Again, we believe the tax exemption should only cease once the trustee’s contractual obligations under the terms of the pension have ceased. This means the tax exemption provided to income on pension assets should cease when the commutation payment is made and not when the commutation request is received."